[Federal Register: October 31, 2007 (Volume 72, Number 210)]
[Proposed Rules]
[Page 61585-61588]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31oc07-29]
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LIBRARY OF CONGRESS
Copyright Royalty Board
37 CFR Part 382
[Docket No. 2006-1 CRB DSTRA]
Adjustment of Rates and Terms for Preexisting Subscription and
Satellite Digital Audio Radio Services
AGENCY: Copyright Royalty Board, Library of Congress.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Copyright Royalty Judges are publishing for comment
proposed regulations that set the rates and terms for the use of sound
recordings by preexisting subscription services for the period January
1, 2008, through December 31, 2012.
DATES: Comments and objections, if any, are due no later than November
30, 2007.
ADDRESSES: Comments and objections may be sent electronically to
crb@loc.gov. In the alternative, send an original, five copies and an
electronic copy on a CD either by mail or hand delivery. Please do not
use multiple means of transmission. Comments and objections may not be
delivered by an overnight delivery service other than the U.S. Postal
Service Express Mail. If by mail (including overnight delivery),
comments and objections must be addressed to: Copyright Royalty Board,
P.O. Box 70977, Washington, DC 20024-0977. If hand delivered by a
private party, comments and objections must be brought to the Copyright
Office Public Information Office, Library of Congress, James Madison
Memorial Building, Room LM-401, 101 Independence Avenue, SE.,
Washington, DC 20559-6000. If delivered by a commercial courier,
comments and objections must be delivered between 8:30 a.m. and 4 p.m.
to the Congressional Courier Acceptance Site located at 2nd and D
Street, NE., Washington, DC, and the envelope must be addressed to:
Copyright Royalty Board, Library of Congress, James Madison Memorial
Building, LM-403, 101 Independence Avenue, SE., Washington, DC 20559-
6000.
FOR FURTHER INFORMATION CONTACT: Richard Strasser, Senior Attorney, or
Gina Giuffreda, Attorney-Advisor, by telephone at (202) 707-7658 or e-
mail at crb@loc.gov.
SUPPLEMENTARY INFORMATION:
Background
Section 106(6) of the Copyright Act, title 17 of the United States
Code, gives a copyright owner of sound recordings an exclusive right to
perform the copyrighted works publicly by means of a digital audio
transmission. This right is limited by section 114(d), which allows
certain non-interactive digital audio services, including preexisting
subscription services, to make digital transmissions of a sound
recording under a compulsory license, provided the services pay a
reasonable royalty fee and comply with the terms of the license.
Moreover, these services may
[[Page 61586]]
make any necessary ephemeral reproductions to facilitate the digital
transmission of the sound recording under a second license set forth in
section 112(e) of the Copyright Act. The terms and rates for this
statutory license have been adjusted periodically by the Librarian of
Congress and appear in 37 CFR Part 260. However, the Copyright Royalty
and Distribution Reform Act of 2004, Pub. L. No. 108-419, transferred
jurisdiction over these rates and terms to the Copyright Royalty Judges
(``Judges''). 17 U.S.C. 801(b)(1). The current rates applicable to
preexisting subscription services expire on December 31, 2007.
On January 9, 2006, pursuant to 17 U.S.C. 803(b)(1)(A)(i)(V), the
Copyright Royalty Judges published a notice in the Federal Register
announcing commencement of the proceeding to determine rates and terms
of royalty payments under sections 114 and 112 for the activities of
preexisting subscription services \1\ and requesting interested parties
to submit their petitions to participate. 71 FR 1455 (January 9, 2006).
Petitions to participate in the proceeding to set these rates and terms
were received from SoundExchange, Inc. and Music Choice.
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\1\ The Notice also commenced and requested Petitions to
Participate for the proceeding to determine rates and terms for
preexisting satellite digital audio radio services (``SDARS''), as
required under section 804(b)(3)(B). Unlike the preexisting
subscription services, the SDARS did not reach a settlement
regarding rates and terms governing their activities under sections
112 and 114 and proceeded to a full hearing before the Judges.
Consequently, those rates and terms will be determined by the Judges
and also will be contained in proposed Part 382. Today's notice of
proposed rulemaking discusses only the preexisting subscription
services.
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The Judges set the schedule for the proceeding, including the dates
for the filing of written direct statements as well as the dates for
oral testimony. Subsequent to the filing of their written direct
statements, but prior to the oral presentation of witnesses,
SoundExchange and Music Choice informed the Judges that they had
``reached a settlement of all issues between them in this proceeding,
including the rates and terms for the statutory license applicable to
pre-existing subscription services'' under sections 114 and 112 of the
Copyright Act for the period from January 1, 2008, through December 31,
2012. Notice of Settlement at 1 (filed June 12, 2007). They also stated
that the settlement agreement would be submitted to the Judges ``for
approval and adoption pursuant to 17 U.S.C. 801(b)(7)(A).'' Id. at 2.
The settlement agreement, including the proposed rates and terms, was
filed on October 19, 2007.
Section 801(b)(7)(A) allows for the adoption of rates and terms
negotiated by ``some or all of the participants in a proceeding at any
time during the proceeding'' provided they are submitted to the
Copyright Royalty Judges for approval. This section provides that in
such event:
(i) The Copyright Royalty Judges shall provide to those that
would be bound by the terms, rates, or other determination set by
any agreement in a proceeding to determine royalty rates an
opportunity to comment on the agreement and shall provide to
participants in the proceeding under section 803(b)(2) that would be
bound by the terms, rates, or other determination set by the
agreement an opportunity to comment on the agreement and object to
its adoption as a basis for statutory terms and rates; and
(ii) The Copyright Royalty Judges may decline to adopt the
agreement as a basis for statutory terms and rates for participants
that are not parties to the agreement, if any participant described
in clause (i) objects to the agreement and the Copyright Royalty
Judges conclude, based on the record before them if one exists, that
the agreement does not provide a reasonable basis for setting
statutory terms or rates.
17 U.S.C. 801(b)(7)(A). Rates and terms adopted pursuant to this
provision are binding on all copyright owners of sound recordings and
preexisting subscription services performing the sound recordings for
the license period 2008-2012.
As part of this notice of proposed rulemaking, the Copyright
Royalty Judges are modifying two aspects of the proposed rates and
terms. First, the submitted proposal placed the rates and terms in part
260, which is in Chapter II of 37 CFR. Chapter II contains the
regulations of the Copyright Office, not the Copyright Royalty Board.
Therefore, we are changing the numbering of the proposed regulations to
reflect their proper location in Chapter III of 37 CFR.
Second, proposed Sec. Sec. 260.5(c) and 260.6(c) (now 382.5(c) and
382.6(c), respectively) require that interested parties intending to
conduct an audit of a service or of the entity making the royalty
payment, respectively, file with the Copyright Office a notice of
intent to audit. We are changing these provisions to require that such
notices of intent to audit be filed with the Copyright Royalty Board
rather than the Copyright Office.
As discussed above, the public may comment and object to any or all
of the proposed regulations contained in this notice of proposed
rulemaking. Those who do comment and object, however, must be prepared
to participate in further proceedings in this docket to establish rates
and terms for the activities of preexisting subscription services under
the sections 112 and 114 licenses.
List of Subjects in 37 CFR Part 382
Copyright, Digital audio transmissions, Performance right, Sound
recordings.
Proposed Regulations
For the reasons set forth in the preamble, the Copyright Royalty
Judges propose to add part 382 to Chapter III of title 37 of the Code
of Federal Regulations to read as follows:
PART 382--RATES AND TERMS FOR PREEXISTING SUBSCRIPTION SERVICES'
DIGITAL TRANSMISSIONS OF SOUND RECORDINGS AND MAKING OF EPHEMERAL
PHONORECORDS
Sec.
382.1 General.
382.2 Royalty fees for the digital performance of sound recordings
and the making of ephemeral phonorecords by preexisting subscription
services.
382.3 Terms for making payment of royalty fees.
382.4 Confidential information and statements of account.
382.5 Verification of statements of account.
382.6 Verification of royalty payments.
382.7 Unknown copyright owners.
Authority: 17 U.S.C. 112(e), 114, and 801(b)(1).
Sec. 382.1 General.
(a) This part 382 establishes rates and terms of royalty payments
for the public performance of sound recordings by nonexempt preexisting
subscription services in accordance with the provisions of 17 U.S.C.
114(d)(2), and the making of ephemeral phonorecords in connection with
the public performance of sound recordings by nonexempt preexisting
subscription services in accordance with the provisions of 17 U.S.C.
112(e).
(b) Upon compliance with 17 U.S.C. 114 and the terms and rates of
this part, nonexempt preexisting subscription services may engage in
the activities set forth in 17 U.S.C. 114(d)(2).
(c) Upon compliance with 17 U.S.C. 112(e) and the terms and rates
of this part, nonexempt preexisting subscription services may engage in
the activities set forth in 17 U.S.C. 112(e) without limit to the
number of ephemeral phonorecords made.
(d) For purposes of this part, Licensee means any preexisting
subscription service as defined in 17 U.S.C. 114(j)(11).
[[Page 61587]]
Sec. 382.2 Royalty fees for the digital performance of sound
recordings and the making of ephemeral phonorecords by preexisting
subscription services.
(a) Commencing January 1, 2008, and continuing through December 31,
2011, a Licensee's monthly royalty fee for the public performance of
sound recordings pursuant to 17 U.S.C. 114(d)(2) and the making of any
number of ephemeral phonorecords to facilitate such performances
pursuant to 17 U.S.C. 112(e) shall be 7.25% of such Licensee's monthly
gross revenues resulting from residential services in the United
States.
(b) Commencing January 1, 2012, and continuing through December 31,
2012, a Licensee's monthly royalty fee for the public performance of
sound recordings pursuant to 17 U.S.C. 114(d)(2) and the making of any
number of ephemeral phonorecords to facilitate such performances
pursuant to 17 U.S.C. 112(e) shall be 7.5% of such Licensee's monthly
gross revenues resulting from residential services in the United
States.
(c) Each Licensee making digital performances of sound recordings
pursuant to 17 U.S.C. 114(d)(2) and ephemeral phonorecords pursuant to
17 U.S.C. 112(e) shall make an advance payment of $100,000 per year,
payable no later than January 20th of each year. The annual advance
payment shall be nonrefundable, but the royalties due and payable for a
given year or any month therein under paragraphs (a) and (b) of this
section shall be recoupable against the annual advance payment for such
year; Provided, however, that any unused annual advance payment for a
given year shall not carry over into a subsequent year.
(d) A Licensee shall pay a late fee of 1.5% per month, or the
highest lawful rate, whichever is lower, for any payment received after
the due date. Late fees shall accrue from the due date until payment is
received.
(e)(1) For purposes of this section, gross revenues shall mean all
monies derived from the operation of the programming service of the
Licensee and shall be comprised of the following:
(i) Monies received by Licensee from Licensee's carriers and
directly from residential U.S. subscribers for Licensee's programming
service;
(ii) Licensee's advertising revenues (as billed), or other monies
received from sponsors, if any, less advertising agency commissions not
to exceed 15% of those fees incurred to a recognized advertising agency
not owned or controlled by Licensee;
(iii) Monies received for the provision of time on the programming
service to any third party;
(iv) Monies received from the sale of time to providers of paid
programming such as infomercials;
(v) Where merchandise, service, or anything of value is received by
Licensee in lieu of cash consideration for the use of Licensee's
programming service, the fair market value thereof or Licensee's
prevailing published rate, whichever is less;
(vi) Monies or other consideration received by Licensee from
Licensee's carriers, but not including monies received by Licensee's
carriers from others and not accounted for by Licensee's carriers to
Licensee, for the provision of hardware by anyone and used in
connection with the programming service;
(vii) Monies or other consideration received for any references to
or inclusion of any product or service on the programming service; and
(viii) Bad debts recovered regarding paragraphs (e)(1)(i) through
(vii) of this section.
(2) Gross revenues shall include such payments as set forth in
paragraphs (e)(1)(i) through (viii) of this section to which Licensee
is entitled but which are paid to a parent, subsidiary, division, or
affiliate of Licensee, in lieu of payment to Licensee but not including
payments to Licensee's carriers for the programming service. Licensee
shall be allowed a deduction from ``gross revenues'' as defined in
paragraph (e)(1) of this section for affiliate revenue returned during
the reporting period and for bad debts actually written off during
reporting period.
(f) During any given payment period, the value of each performance
of each digital sound recording shall be the same.
Sec. 382.3 Terms for making payment of royalty fees.
(a) Payment to Collective. All royalty payments shall be made to
the Collective designated for the collection and distribution of
royalties for the 2008-2012 time period, which shall be SoundExchange.
(b) Timing of payment. Payment shall be made on the forty-fifth day
after the end of each month for that month, commencing with the month
succeeding the month in which the royalty fees are set.
(c) Distribution of royalties. (1) The Collective shall promptly
distribute royalties received from Licensees to copyright owners and
performers, or their designated agents, that are entitled to such
royalties. The Collective shall only be responsible for making
distributions to those copyright owners, performers, or their
designated agents who provide the Collective with such information as
is necessary to identify the correct recipient. The Collective shall
distribute royalties on a basis that values all performances by a
Licensee equally based upon the information provided under the reports
of use requirements for Licensees contained in Sec. 370.2 of this
chapter.
(2) If the Collective is unable to locate a copyright owner or
performer entitled to a distribution of royalties under paragraph
(c)(1) of this section within 3 years from the date of payment by a
Licensee, such distribution may first be applied to the costs directly
attributable to the administration of that distribution. The foregoing
shall apply notwithstanding the common law or statutes of any State.
Sec. 382.4 Confidential information and statements of account.
(a) For purposes of this part, confidential information shall
include statements of account and any information pertaining to the
statements of account designated as confidential by the nonexempt
preexisting subscription service filing the statement. Confidential
information shall also include any information so designated in a
confidentiality agreement which has been duly executed between a
nonexempt preexisting subscription service and an interested party, or
between one or more interested parties; Provided that all such
information shall be made available, for the verification proceedings
provided for in Sec. Sec. 382.5 and 382.6.
(b) Nonexempt preexisting subscription services shall submit
monthly statements of account on a form provided by the Collective and
the monthly royalty payments.
(c) A statement of account shall include only such information as
is necessary to verify the accompanying royalty payment. Additional
information beyond that which is sufficient to verify the calculation
of the royalty fees shall not be included on the statement of account.
(d) Access to the confidential information pertaining to the
royalty payments shall be limited to:
(1) Those employees, agents, consultants and independent
contractors of the Collective, subject to an appropriate
confidentiality agreement, who are engaged in the collection and
distribution of royalty payments hereunder and activities directly
related hereto, who are not also employees or officers of a sound
recording copyright owner or performing artist, and who, for the
purpose of performing such duties
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during the ordinary course of employment, require access to the
records; and
(2) An independent and qualified auditor who is not an employee or
officer of a sound recording copyright owner or performing artist, but
is authorized to act on behalf of the interested copyright owners with
respect to the verification of the royalty payments.
(3) Copyright owners and performers whose works have been used
under the statutory licenses set forth in 17 U.S.C. 112(e) and 114(f)
by the Licensee whose Confidential Information is being supplied, or
agents thereof, subject to an appropriate confidentiality agreement,
provided that the sole confidential information that may be shared
pursuant to this paragraph (d)(3) are the monthly statements of
accounts that accompany royalty payments.
(e) The Collective or any person identified in paragraph (d) of
this section shall implement procedures to safeguard all confidential
financial and business information, including, but not limited to
royalty payments, submitted as part of the statements of account, using
a reasonable standard of care, but no less than the same degree of
security used to protect confidential financial and business
information or similarly sensitive information belonging to the
Collective or such person.
(f) Books and records relating to the payment of the license fees
shall be kept in accordance with generally accepted accounting
principles for a period of three years. These records shall include,
but are not limited to, the statements of account, records documenting
an interested party's share of the royalty fees, and the records
pertaining to the administration of the collection process and the
further distribution of the royalty fees to those interested parties
entitled to receive such fees.
Sec. 382.5 Verification of statements of account.
(a) General. This section prescribes general rules pertaining to
the verification of the statements of account by interested parties
according to terms promulgated by the Copyright Royalty Board.
(b) Frequency of verification. Interested parties may conduct a
single audit of a nonexempt preexisting subscription service during any
given calendar year.
(c) Notice of intent to audit. Interested parties must submit a
notice of intent to audit a particular service with the Copyright
Royalty Board, which shall publish in the Federal Register a notice
announcing the receipt of the notice of intent to audit within 30 days
of the filing of the interested parties' notice. Such notification of
intent to audit shall also be served at the same time on the party to
be audited.
(d) Retention of records. The party requesting the verification
procedure shall retain the report of the verification for a period of
three years.
(e) Acceptable verification procedure. An audit, including
underlying paperwork, which was performed in the ordinary course of
business according to generally accepted auditing standards by an
independent auditor, shall serve as an acceptable verification
procedure for all parties.
(f) Costs of the verification procedure. The interested parties
requesting the verification procedure shall pay for the cost of the
verification procedure, unless an independent auditor concludes that
there was an underpayment of five (5) percent or more; in which case,
the service which made the underpayment shall bear the costs of the
verification procedure.
(g) Interested parties. For purposes of this section, interested
parties are those copyright owners who are entitled to receive royalty
fees pursuant to 17 U.S.C. 114(g), their designated agents, or the
Collective.
Sec. 382.6 Verification of royalty payments.
(a) General. This section prescribes general rules pertaining to
the verification of the payment of royalty fees to those parties
entitled to receive such fees, according to terms promulgated by the
Copyright Royalty Board.
(b) Frequency of verification. Interested parties may conduct a
single audit of the Collective during any given calendar year.
(c) Notice of intent to audit. Interested parties must submit a
notice of intent to audit the entity making the royalty payment with
the Copyright Royalty Board, which shall publish in the Federal
Register a notice announcing the receipt of the notice of intent to
audit within 30 days of the filing of the interested parties' notice.
Such notification of interest shall also be served at the same time on
the party to be audited.
(d) Retention of records. The interested party requesting the
verification procedure shall retain the report of the verification for
a period of three years.
(e) Acceptable verification procedure. An audit, including
underlying paperwork, which was performed in the ordinary course of
business according to generally accepted auditing standards by an
independent auditor, shall serve as an acceptable verification
procedure for all interested parties.
(f) Costs of the verification procedure. The interested parties
requesting the verification procedure shall pay for the cost of the
verification procedure, unless an independent auditor concludes that
there was an underpayment of five (5) percent or more, in which case,
the entity which made the underpayment shall bear the costs of the
verification procedure.
(g) Interested parties. For purposes of this section, interested
parties are those who are entitled to receive royalty payments pursuant
to 17 U.S.C. 114(g)(2), or their designated agents.
Sec. 382.7 Unknown copyright owners.
If the Collective is unable to identify or locate a copyright owner
or performer who is entitled to receive a royalty distribution under
this part, the Collective shall retain the required payment in a
segregated trust account for a period of 3 years from the date of
distribution. No claim to such distribution shall be valid after the
expiration of the 3-year period. After expiration of this period, the
Collective may apply the unclaimed funds to offset any costs deductible
under 17 U.S.C. 114(g)(3). The foregoing shall apply notwithstanding
the common law or statutes of any State.
Dated: October 26, 2007.
James Scott Sledge,
Chief Copyright Royalty Judge.
[FR Doc. E7-21473 Filed 10-30-07; 8:45 am]
BILLING CODE 1410-72-P